The Australian dollar closed higher versus the US dollar for a third straight session on Tuesday. The Aussie dollar US dollar exchange rate closed UP 0.2% at US$0.6856. The Australian dollar started Wednesday on the front foot. However, the US dollar has since pushed higher, snapping the 3-day winning streak for the pair.
The Australian dollar strengthened in early trade on Wednesday following upbeat inflation numbers. Australian inflation, as measured by the consumer price index (CPI) increased slightly to 1.7% from 1.6% in the three months to September.
The uptick in inflation is pushing investors to believe that he Reserve Bank of Australia (RBA) will be unlikely to cut interest rates in November. Prior to the inflation report market participants were counting on a 14% probability of the RBA cutting rates in November. This has now been reduced to 0. When the prospect of a rate cut declines, the value of the currency often increases.
There is no more economic data due for release today. Investors will look ahead to mid-tier data on Thursday; housing approvals.
Fed In Focus
After drifting lower in early trade, the US dollar jumped following better than forecast US GDP figures. The US economy grew at a solid 1.9% annualised in the third quarter. Whilst the growth is slightly softer than 2% in the second quarter, it is still markedly better than the 1.6% that analyst had forecast. The stronger than predicted growth was down to strong consumer and government spending.
The figures have calmed nerves over the health of the US economy and have dampened fears that the slump in the US manufacturing sector is spilling over into the consumer sector.
Investors will now look towards the Federal Reserve monetary policy rate announcement this evening. Market participants expect the Fed to cut interest rates by 0.25%. Investors will watch carefully to see whether the Fed intends to cut rates again this year. Following the strong GDP data another insurance cut is looking very unlikely. Should the Fed signal that they won’t hike again this cycle, the dollar could advance.
|What do these figures mean?|
|When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written:
1 USD = 0.6784 AUD
Here, $1 is equivalent to approximately A$0.67. This specifically measures the US dollar’s worth against the Australian dollar. If the Aussie dollar amount increases in this pairing, it’s positive for the US dollar.
Or, if you were looking at it the other way around:
1 AUD = 1.4739 USD
In this example, A$1 is equivalent to approximately $1.47. This measures the Australian dollar’s worth versus the US Dollar. If the US dollar number gets larger, it’s good news for the Aussie dollar.